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Occupancy-led Q1FY27 expected to shift towards a rate rebuild in Q2FY27

Q1FY27 growth was largely occupancy-led, as international air traffic declined 10.2% YoY, while domestic traffic grew only 1.2%, amid West Asia conflictrelated airspace closure and flight rerouting. Higher airfare and weaker foreign arrivals affected the higher-paying international segment, while softer corporate and MICE demand led mid-scale and upscale hotels to rely more on domestic retail demand, limiting net rate growth. We expect the growth mix to shift towards pricing in Q2FY27 as the initial demand shock has been absorbed. Occupancy and rates began recovering in May–June, with July performance ahead of Q1 level. With occupancy already in the mid-to-high 70s across several operators, further RevPAR improvement is likely to be increasingly rate-led. Improving MICE activity forecast to provide additional pricing support, particularly in gateway markets. We, therefore, expect ARR growth to accelerate sequentially in Q2FY27, even without a meaningful recovery in foreign arrivals.

High-conviction Investment Ideas: ITCHOTEL, CHALET, SAMHI, BRIGHOTE

We favour ITCHOTEL, CHALET, SAMHI and BRIGHOTE. ITCHOTEL benefits from resilient domestic demand and a scalable management-contract pipeline. CHALET offers premium leisure exposure and annuity-led growth. SAMHI combines corporate-led occupancy and premiumization. BRIGHOTE offers strong ARR upside from its luxury/upper-upscale pipeline

Catalysts: MICE recovery to support room rates; F&B maybe delayed

The BRICS Summit on 12–13 September should provide a near-term boost to room rates, particularly in Delhi-NCR and other gateway markets. MICE activity is also recovering; events postponed/cancelled in Q1 are gradually returning. However, we project the recovery to be more visible in rooms than F&B in Q2

Key Risk: Weak foreign demand and air traffic to limit margin upside

Q2 is seasonally a softer quarter for Indian hotels, with the monsoon weighing on leisure demand and occupancy. H2FY27 will be a key period to watch, as potential de-escalation in West Asia could support a gradual recovery in foreign arrivals. The festive and wedding season, along with stronger MICE activity, is anticipated to drive demand and pricing in H2. Margin expansion may remain moderate in Q2 amid power/fuel cost and renovation-related displacement.

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